Earlier this week Reuters made a splash with a big story about how some big retailers are pushing into a “crowded” mobile payments market by releasing their own m-payment apps. Among the reasons for the initiatives mention by the piece, first place goes to the estimated $150 billion that retailers in developed countries spend every year to accept card payments from customers.
While merchants who adopt such systems can in certain cases enjoy lower transaction fees this may not be the most important benefit such retailers may enjoy. As or more valuable are the ability to integrate loyalty schemes into m-payment applications and the wealth of customer data that m-payments can offer merchants.
Loyalty = Interest
Meanwhile, it is crucial to understand that loyalty schemes represent more than just a key potential benefit of m-payments. For most merchants they offer the best – or only – practical way to encourage use of a branded m-payment app among existing and potential customers. This is because even many tech-savvy smartphone users are proving hesitant when it comes to downloading and using “pure” m-payment apps.
So by integrating existing or new loyalty schemes into m-payment apps, merchants can give adoption a crucial boost. A crucial example of such a success is offered by leading global coffee chain Starbucks, which launched an integrated m-payment and loyalty scheme app (right) in 2011 that allows regular customers to earn redeemable “stars” with each purchase. While in some ways limited in ambition – the app is funded via a purchase of chain’s prepaid cards – purchases made by the 10 million users of the app now represent more than 10% of the one-third of Starbucks’ North American business funded by such prepaid cards.
Before merchants start seeing stars over Starbucks’ m-payment success, it should be remembered that firms like it are rare in terms of their ability to attract massive amounts of regular, repeat business. It is easy to picture fanatical latte-sippers or daily shoppers at leading European hypermarket chains like Tesco and Auchan (which are both offering own-brand mobile wallets) reaching for their phones to pay, and collect points. But if a firm is not profoundly tied in to their customers’ lives these individuals are unlikely to actually download and use a stand-alone m-payment app, even if it offers a highly usable loyalty program with unique offerings.
Indeed, even some enormous merchants with deeply loyal customers have determined it makes better sense to join forces with others rather than rolling an m-payment app that is strictly their own. This is the logic behind the so-called Merchant Customer Exchange (MCX), a pilot project which links together some of the largest retail names in the United States, including Wal-Mart, Best Buy and Target.
Yet while such partner or third-party branded m-payment apps can offer merchants a compelling degree of scale vis-a-vis customer interest, they are unlikely to offer the same kind of flexibility with regard to the loyalty programs that are the other key driver of end-user interest. For some merchants it would also be unthinkable to hand off such customer data to a third party.
And speaking of customer data, there remains the crucial issue of security. While loyalty schemes may offer an enticement for customers to adopt an app, most will only do so if they are convinced it provides the highest level of security available.
“We can offer merchants a white-label m-payment solution with seamless integration of voucher and loyalty point systems and other related features,” says Maria Bichl, the head of business development at Cellum Austria. “But in the end, the most important feature we can provide is our unparalleled expertise in and commitment to security. Because there is no such thing as customer loyalty without customer security.”